Is Australia as Dumb as Britain?
There is a satirical magazine in the UK called Private Eye. It’s been around since the 1960s. Its editorial bent is to poke fun at the British establishment and also to point out some of the things not picked up by the mainstream media.
It also has a section called “Dumb Britain.” Each fortnight it lists a sample of bizarre answers by contestants on British quiz shows. A recent example was:
Noel Edmonds: How many days will there be in the year 2010?
Contestant: Er… is it 60 or 52?
Unfortunately for the British, it seems as though every day they wake up their government has devised a new way of wasting taxpayer pounds to “save jobs” and “stimulate the economy.”
Our first reaction is, “So what? Leave them to it.”
The trouble is there is a danger of Britain turning into a “Dumb Idea Factory” and the Australian government could decide to import some of those ideas.
We’ve got little doubt that the Australian government will do something else dumb. It’s record so far is evidence of that. The bank guarantee and pre-Christmas spending bribes are two such examples.
Perhaps one saving grace is that we don’t seem to have an opposition leader who is trying to raise the stakes - although we are sure that is only a temporary state of affairs. For example, the UK government is considering providing a government backed guarantee on up to GBP20 billion of lending to small business.
The opposition response? “Make it GBP50 billion.”
We assume that will mean the local IT services company employing five people will have a better credit rating than British Airways!
But there seriously is the potential that the Australian government will look to “do more” seeing as the Christmas bonus bribe ‘failed.’ How do we know it failed?
Well, let’s clarify what we mean by failure. The idea of the Christmas bribe it seems was to give the economy a boost. It was to give a whole bunch of cash to low and middle income earners and tell them that their “country expects” them to do the right thing - SPEND!
Needless to say, as with any government inspired (should that be despired?) plan, it failed. It didn’t work. It didn’t do what in their wisdom they thought it would do.
We know it didn’t work because the numbers from lobbying group, the Australian Retailers Association (ARA) tells us so. The report from Bloomberg News reports “Australian shoppers spent A$37 billion in December, with consumers buoyed by cheaper gasoline, lower interest rates and a government bonus.”
That sounds good. But just to be sure, let’s go straight to the horse’s mouth. A visit to the ARA website gives us the full press release so we can see for ourselves. It notes that the sales figures was a “great outcome.”
But how great? Actually, if the idea was for the $8.7 billion government bribe to be spent then the government and retailers must be sorely disappointed. Because the $37 billion in December retail spending was an increase of just $500 million compared to the $36.5 billion spent in December 2007.
That’s a “two per cent increase” according to the ARA. Well, it is if you round up. In fact, the increase is more like 1.4% which as any primary age kid will tell you, you should round down if you’re not recording it to the first decimal point.
But anyway, the fact is, of the $8.7 billion of taxpayer funds that the government has redistributed, only $500 million of it went to the retailers.
Or, supposing a bigger portion of the bribe did get spent (say $4 billion of it) then it gives you a pretty good idea of the strife the economy is in if retailing needed to be propped up that much.
Whichever way you look at it, the consumer has been stung again. If retailers hadn’t been expecting a free-kick from the bribe they may very well have cut their prices further which would have induced consumers to spend without the need of a government backed subsidy.
Taxpayers subsidizing overproduction by businesses will only prolong the economic downturn rather than help it.
Here’s looking forward to the next Dumb Idea.
Golden Opportunities
On another subject, gold. We probably get more enquiries on the various aspects of gold than any other subject. In fact the last issue of Diggers & Drillers was almost entirely devoted to the subject.
So we thought it would be a good idea to corner our returned Swarm Trader Gabriel Andre and squeeze as much information from him as we could about how the gold price looked from a technical analysts’ point of view…
Cheers.
Kris.
We Grill Swarm Trader Gabriel Andre on Gold
Kris Sayce (KS): What do you make of the recent price action in gold?
Gabriel Andre (GA): Continuing on from 2008 the Gold price action is still experiencing strong countertrends. At the moment it is like the other commodities markets, it does not convince investors of a clear new long-term direction.
KS: Have you seen any changes in its behaviour recently?
GA: The two last months of the year have been quite bullish for Gold. As we were mentioning in our last update of November 25, the medium-term target of $890 has been reached twice. As you can see at ‘point H’ on this chart, on December 29 a high at $892 was posted while on January 2 the price reached the level of $889.
As expected this level acted as a resistance therefore the price action has retraced since this time and Gold is currently trading lower, around $820. This resistance is at ‘points E, F and G’ on the line that goes through the lower highs posted since the historical peak of March 2008.
KS: Would you say that gold is still looking like a ‘bullish’ trade?
GA: Actually, the end of the year corresponded to the end of the bullish momentum therefore negative technical signals were triggered during the first week of January. The MACD reached a top that had not been seen since January 2008, one year ago. It peaked, curved downward and eventually crossed below its signal line. Same thing with the technical Momentum indicator that peaked and then fell sharply as the price action failed to push up further.
Technically, the broad technical picture has not changed. Indeed the price action found some support just below $700 as you can see at point D on the chart. That is a previous low level tested several times in 2007 at points A, B and C.
KS: So, if I was in the market to buy gold, you’d tell me to hold off for a while?
GA: The main support level, around $635, has not been tested. This level is a previous high posted in late 2005 and that became a new low several times in 2006. On the downside, gold prices are therefore well supported by those two levels ($700 and $635).
This morning Gold is trading around $820, which is 8% lower than the recent peak 12 days ago. It looks like a further decline is expected. As I said earlier, the technical indicators are quite bearish and some further profit taking should mechanically push the price lower.
KS: Gold investors also need to be mindful of the foreign exchange rates when buying gold. How has the Aussie tracked against the gold price?
GA: Yes, look at the correlation with the AUD/USD (red line on the chart). The currency pair took advantage in December of the sharp rebound on Gold prices. And now the correction on Gold prices drives the retracement on the Aussie. The negative correlation between the US Dollar and the commodities is therefore still the paradigm on the global markets.
If we look more precisely at the recent move, we can anticipate the potential immediate targets for Gold. The bullish trend that drove Gold from roughly $700 to $900 (between points D and H) is now retracing.
As for what will happen to the gold price next. Take a look at this chart.
The low at $815 posted 2 days ago corresponds to the 38.2% retracement level of this bullish trend. However the main objective may be the 50% retracement ratio that corresponds to $790. This should be the next target.